Medtronic CEO: Medtech Innovation Is in a 'Very Good Spot Right Now'

If you want to talk about the state of the medtech industry, there are few better sources than the CEO of the largest medical device company in the world.

Clearly, Larry Biegelsen, a medtech analyst at Wells Fargo, thought so too, as he recently hosted Medtronic CEO Geoff Martha as the keynote speaker for the 2024 Wells Fargo Healthcare Conference.

"Look, we've come through, I think, a couple of tough years with COVID and everything, but it's a very good spot right now, namely because of innovation, I believe," Martha said when Biegelsen asked him about the state of the medtech industry in 2024. "Innovation is really strong, and it's innovation in areas where there's a big patient need and a lot of patients, areas like diabetes or [atrial fibrillation], and we're counting on hypertension."

Specifically, Martha talked about his excitement around pulsed field ablation (PFA) for the treatment of atrial fibrillation. Medtronic stole the spotlight in PFA late last year when FDA approved the company's PulseSelect PFA system, making it the first to market in the United States.

Boston Scientific wasn't far behind Medtronic, however. FDA approved Boston Scientific's Farapulse PFA system in January, which was arguably one of the most highly-anticipated regulatory approvals of the year.

Johnson & Johnson's Biosense Webster unit is also working on a PFA system dubbed the Varipulse, which has shown promising results so far in clinical trials.

And in hypertension, Medtronic schooled us all on the power of persistence last November when it won, at long last, FDA approval for its Symplicity Spyral renal denervation system. That technology fills a critical gap in the way hypertension is treated in the United States.

After years of twists and turns, Medtronic scored FDA approval for a renal denervation system (Symplicity Spyral) in November 2023. Image courtesy of Medtronic.

There is a lot of innovation coming through the pipeline in medtech and Martha said that innovation is getting rewarded with growth and pricing. Healthy end markets is another contributing factor, he noted.

And of course, it wouldn't be a conversation about medtech innovation in 2024 without talking about the digital tech component.

"And I think in digital, whether it be data and AI, but also computing, supercomputing, edge computing, cloud computing, everything is connected," Martha said. "And then finally, robotics. All of that coming into the industry. These big tech areas coming into medtech are exciting."

How do you monetize AI in medtech?

Speaking of digital technology in medical devices, this was probably Biegelsen's million-dollar question for Martha: "Everyone talks about AI, but the question investors are asking is, 'How do you monetize it?"

Martha said he doesn't believe the use of artificial intelligence in medtech is hype, and he cited a number of Medtronic's AI-based medical devices that are already on the market in sectors such as gastroenterology (colonoscopies), surgery, atrial fibrillation detection, and diabetes management.

"t's really having an impact and that's one of the things that challenged our team and we've had some success here [in] making sure the business model is there so you get paid," Martha said.

In Medtronic's spine business, for example, the company's AI-based surgical planning software has accelerated that business, he said.

"That's an AI-based software that really guides the surgeon through the procedure and and tracks the follow-up, etc.," Martha said. "We're just getting better outcomes and for that, we're charging. We've created a subscription model there. Same thing we're doing [with] GI Genius."

Medtronic’s GI Genius intelligent endoscopy module has been named to the prestigious Fortune 2022 “ChangMedtronic's GI Genius module is the first commercially available computer-aided detection system that uses AI to help physicians identify polyps and flag signs of colon cancer that might otherwise be missed, in real time. Image courtesy of Medtronic.

So the long and short of it is, yes, medical device companies can get paid for building AI into their products, if it leads to better patient outcomes. The more complicated part of the equation is who pays that bill.

"Right now, it's been something that hospitals got to come out of pocket for," Martha said. "I think the next step for us is getting actual specific reimbursement for this, and that's something we're working on. ... But the opportunity is there to get paid for this."

Medtronic is at an advantage here due to its scale, Martha admitted, and he noted the June 2023 hiring of Ken Washington, the company's chief technology and innovation officer. Medtronic stole him from Big Tech, or more specifically, from Amazon. The impetus for bringing Washington on board was that Medtronic hadn't had a chief technology officer before and the timing made sense as things like AI and robotics began to play a larger role in the portfolio.

"Certain aspects of your AI strategy I think are better at a company like ours to be centralized," Martha said. "So, each business doesn't have to build a platform by themselves. So now we've got a platform and/or platforms, if you will, at the enterprise level that the businesses can leverage."

Are procedure volumes still a concern for medtech?

The short answer to this question is no, according to Martha.

"I think the noise has worked its way out," he told Biegelsen. "There's a lot of conversations that you and I have had on different investor calls and stages like this as ... when coming out of COVID, 'Is there this big bolus? What's going on? I think all that's worked out and we're at a new normal, a healthy growth rate of procedures, and I expect that to continue."

What about those GLP-1s everyone keeps talking about?

Martha said GLP-1s, a popular new drug class aimed at diabetes and weight loss, have had an impact on certain areas of medtech for Medtronic.

"GLP-1s have had an impact on sentiment in certain areas and actual procedures," Martha said. "The one area we're seeing is bariatric. That's a relatively small part of Medtronic, low-single digits, and we expect that to actually get back to growth in calendar year '25. So we think that's kind of bottoming out and we'll start to grow again."